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MEASURING
HOUSING
AFFORDABILITY

New Standards of Availability and Attainability

By Isabel Harner

Isabel Harner is is a second-year Master of City Planning student studying Community and Economic Development. After graduating from the University of Wisconsin-Madison, she was a Venture for America Fellow before working for the Department of Housing and Community Development in Baltimore. She is passionate about equitable neighborhood development and local level policy solutions to the housing crisis. In her free time, you can find her exploring Philadelphia by foot, cooking, and playing cards.

The number of households that quickly fell behind on rent during the COVID-19 pandemic brought to light the vast number of American families that live on the brink of losing their housing and illuminated the inequities that underlie the growing housing affordability crisis. The percent of a household’s income spent on housing is the most popular public policy indicator of housing affordability in the United States. The Department of Housing and Urban Development (HUD) defines “cost-burdened” households as those that spend more than 30 percent of their income on housing, and “severely cost-burdened” as those that spend over 50 percent of income on housing. Using this threshold metric to draw conclusions about housing affordability is not precise enough and may result in an inadequate assessment of the scale and distribution of the affordability crisis.

The use of cost-burden as a standard measurement of housing affordability can be traced back to the Brooke Amendment to the 1968 Fair Housing Act. Senator Edward Brooke, a vocal affordable housing advocate, pushed forward the Brooke Amendment in 1969 as a response to rent increases in public housing. The amended legislation capped public housing rent at 25 percent of household income in recognition of the fact they have so little to spend, [1] and in 1981 congress raised the cap to 30 percent. This policy change came about during the 1981 budget crisis, when congress sought to reduce the amount of federal government spending on housing subsidies.[2]

Ever since, the cost-burden metric has been the primary lens to assess and define housing affordability. It is an essential output of the Census and often a basis on which housing policy decisions are made. For example, this metric is the backbone of HUD’s Worst Case Housing Needs Assessment. The Worst Case Housing Needs Assessment presented to Congress in 2019 showed that 7.7 million very low-income renter households, not counting those that receive housing subsidies, spend more than half of their income on housing, live in severely inadequate housing, or both. [3Households with the “worst-case housing needs” receive priority on public housing waiting lists, housing vouchers, and other housing programs.

[1] Mary Schwartz, Ellen Wilson, “Who Can Afford To Live in a Home?: A look at data from the 2006 American Community Survey,” US Census Bureau, 2008.



[2] The Pew Charitable Trusts, “American Families Face a Growing Rent Burden,” 2018.

[3] National Low Income Housing Coalition, “The Gap,” 2021.

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Image: Apartments in New York City.

However, housing affordability is not straightforward as this metric suggests. Without accounting for cost of living, family size, regional market influences, or other housing choice considerations, the metric greatly oversimplifies the housing affordability crisis and results in a lack of nuance that could inform more impactful policy. While it is not possible to capture the entirety of housing affordability issues in one number, additional metrics could better identify where attention is most needed.

The decisions a household makes in choosing housing are extremely nuanced. The cost of health services, food, childcare, taxes, transportation, and other goods all affect what rents families can afford. A household with 60 percent of discretionary income left after paying rent in New York City has drastically different financial burdens than a household with the same discretionary income in a city like Baltimore. Costs of living and household income are both strained when a household is supporting multiple people. Two different households with the same income cannot be expected to afford the same housing costs if one household supports two people and another five. A study examining trends in housing cost-burden for households participating in the Housing Choice Voucher program between 2003 and 2015 found that those in larger single-family units are more likely to experience high or severe housing cost-burdens.[4] In addition, the official calculation at the federal level is based on annual pretax, post-transfer income, which is often larger than after-tax income, resulting in a lower estimate of cost-burdens.[5]

Housing cost-burden metrics also do not adequately capture factors that affect housing affordability and choice, such as neighborhood or housing quality. Housing choices are often subjective and there are various behavioral elements that emerge in making housing decisions. For example, has a family made a tradeoff wherein they pay more for housing to locate near a good school? Is a low-income family paying less than 30 percent of their rent, but in return living in poor conditions with a predatory landlord? Is the housing that is affordable to a certain income group often in segregated neighborhoods? The above referenced study on voucher recipients also found that larger households with children are more likely to be rent-burdened, one explanation being that families with children are likely tied to their school district and social networks, leading them to be less mobile in the event of rising rents. While difficult to capture the tradeoffs households might make in this area, these questions further highlight the over-simplification that accompanies the cost-burden metric and its inability to accurately capture housing needs, affordability, and availability in a holistic way.

"Measuring the availability and attainability of housing can expand the conversation around housing affordability.”

[4]Casey J. Dawkins, Jae Sik Jeon, University of Maryland, “Rent Burden in the Housing Choice Voucher Program,” 2017.

[5] The Pew Charitable Trusts, “American Families Face a Growing Rent Burden,” 2018.

1| RESIDUAL INCOME APPROACH

Michael Stone devised the shelter poverty standard, also known as the “residual income” approach, to illustrate that families with the same income but different household sizes cannot be captured using the same metric of housing cost-burden. This measurement relies on the calculation of living expenses that are then subtracted from a household’s total income to determine what is left to spend on housing. If the household spends more than this amount, it is “shelter-poor.” According to this analysis, there were 90 million persons living in shelter-poor households in 2001, compared to 84 million people living in households paying 30 percent or more of income. (Figure 1) Analysis also revealed that shelter poverty among households with three persons or more has risen to where about two out of every five are shelter-poor. [6]

 

This approach results in a sliding scale that shows how much people can afford to spend on housing, rather than measuring against an arbitrary threshold percentage of income. Smaller households can afford to pay a higher percentage than larger households with the same income, and higher income families can afford to put a larger share of their income towards rent and still meet their basic needs. There is currently no standard for measuring cost of living, but there are advanced analyses that could inspire an approach. The Self-Sufficiency Standard quantifies the income families need to meet basic needs at a minimally adequate level, accounting for family composition and age of children as well as geographic differences,[7and U.S. Department of Agriculture has a “thrifty food budget” that captures what typical households need to spend to sustain a healthy diet. [8]

As the common saying goes, rent eats first. The residual income approach more accurately captures the reality that other expenditures, including those to meet basic needs, must be adjusted after paying for housing and it better illustrates the additional burden that large families face by showing how housing relates to one’s standard of living. It captures an additional share of the population that is struggling to pay rent and, as Stone states, is “a more finely honed tool for identifying those segments of society that are most vulnerable and where attention is most needed.” [9]

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Figure 1:  The gap between households that are shelter poor and households that pay more than 30% of their income towards rent has widened.
Source: Stone, “Shelter Poverty,” 2004.
RESIDUAL INCOME APPROACH VISUALIZATION

Affordability Trends: Number of Households, 1970-2001

[6] Michael Stone, “Shelter Poverty: The Chronic Crisis of Housing Affordability,” New England Journal of Public Policy 20, 1 (2004).

[7] Center for Women’s Welfare (CWW), “Self-Sufficiency Standard,” 2015-2020.

 

[8] National Low Income Housing Coalition, “The Gap,” 2021.

[9] Michael Stone, “Shelter Poverty: The Chronic Crisis of Housing Affordability,” New England Journal of Public Policy 20, 1 (2004).

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GAP ANALYSIS VISUALIZATION

Incremental Change to Surplus (Deficit) of Affordable and Available Rental Homes, 2019 (In Millions)
Figure 2:  The Gap analysis produces cumulative shortages of affordable and available homes. Each point on the line corresponds to the difference between the cumulative number of renters and the cumulative number of affordable and available homes for that income level.

Source: National Low Income Housing Coalition, “The Gap,” 2019.

2| THE GAP IN HOUSING AVAILABILITY

The National Low Income Housing Coalition (NLIHC) annually produces “The Gap,” which measures the availability of rental housing affordable to extremely low-income households (those with incomes at or below the poverty line or 30% of AMI, whichever is greater) and other income groups. The analysis uses Census data to categorize all household income levels and housing units. They use American Community Survey (ACS) Public Use Microdata Sample (PUMS), which contains individual ACS questionnaire records for a subsample of housing units and their occupants. After households and units are categorized, they analyze the extent to which households in each income category resided in housing units categorized as affordable for that income level. Their methodology illustrates how much is already available through the Census.

The 2021 report found that nationwide only 37 affordable and available rental homes exist for every 100 extremely low-income renter household. Availability varies across geographies as well. Kentucky has 52 affordable and available rental homes per 100 extremely low-income renter households while Nevada has 20 for every 100 extremely low-income renter households. This analysis also reveals shortages and oversupply of certain housing types for certain incomes. (Figure 2)

These estimates of the number of units affordable and available to extremely low-income households illustrate regional supply shortages in relation to household incomes. The report emphasizes that cost-burdens are a direct result of the combination of both a shortage of affordable and available rental homes and low wages, underscoring the nuance behind the commonly used cost-burden metric. Measures of availability of housing are more useful in determining the types of housing needed for specific income groups, which can better inform regional housing policy and production.

OCCUPATIONAL ANALYSIS
Home Attainability by Occupation and Housing Type
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Figure 3:  Occupational Analysis compares what is needed to afford various housing types with the median incomes of different occupations in each region.

Source: ULI, “Home Attainability Index,” 2021.

3| HOME ATTAINABILITY INDEX

The Urban Land Institute’s Terwillinger Center created the Home Attainability Index to analyze the extent to which a region’s housing market offers housing choices that are attainable to the regional workforce. The most recent report includes various measures of affordability and attainability, one being attainability by occupation. The occupational analysis connects housing costs to the median wages earned by specific occupations in a region using data provided by the National Housing Conference through its Paycheck-to-Paycheck database.

 

A comparison of housing costs and occupational data results in the identification of an “attainability gap” or the additional income a household would need to afford a given housing type.

[10Analysis revealed that a housekeeper, for example, can afford the least expensive housing type in only four regions 

in the US. A hypothetical two-income household in San Francisco including a childcare worker and teacher can afford only a one-bedroom apartment without being cost-burdened. A waitress needs, on average, $5,488 in additional annual income to afford a typical one bedroom at fair market rent. (Figure 3)

This measurement not only reveals gaps in regional housing markets, but also shows the surplus or deficit of specific housing types for specific income groups in regional economies. Incorporating over- or under-supply of certain housing types may illustrate why certain groups experience higher cost-burdens, and it may also aid policymakers in directing incentives towards the most needed types of housing.

The need for improved metrics and analyses around region-specific housing affordability has become even more urgent in light of exacerbated inequities brought on by the pandemic. More than housing cost-burden does, these additional metrics paint a vastly wider picture of the distribution of the crisis, highlighting the tradeoffs made to obtain housing and how limited housing options impact a household’s ability to meet other basic needs.

There is no one measurement that can be used to identify the full spectrum of housing needs. However, going forward we should expect additional metrics to complement the traditional measurement of cost-burden, with a greater focus on the availability of housing to various owner and renter groups. This will allow stakeholders, policymakers, and developers to produce housing that meets the needs of varying household sizes and incomes and will help them support renters with greater insight into cost-of-living expenses. Planners and policymakers should learn not to rely on the threshold of cost-burden to illustrate affordability crises. They should instead work with currently available data and seek out resources, such as those presented here, to advocate for more targeted remedies to the crises. Attainability gaps by income and residual income analyses can both address the shortcomings of the cost-burden metric, especially by illuminating the unique precarity faced by low-income families and those with children.

[10]  Urban Land Institute, “ULI Terwilliger Center 2021 Home Attainability Index,” 2021.


“There is an increased urgency to capture the full scope of housing needs.”